Question

Two examples of automatic stabilizers built into fiscal policy are: (2 answers)

A. greater claims on the federal unemployment compensation program.

B. new laws that put in place new jobs programs, like the ones created during the great depression.

C. tax increases when incomes rise during an expansion.

D. tax increases when incomes fall during a recession.

Answer 1

The two examples of automatic stabilizers are:

Option 'a' greater claims on the federal unemployment compensation program.

and

Option 'C' tax increases when incomes rise during an expansion.

Option ''a' is correct because as the unemployment rises, more people starts receiving unemployment benefits and as the employment rises during expansion, less people will be given unemployment benefit.

Whereas option 'c' is correct because as people starts earning more during expansion they will get into higher income tax slabs and pays more taxes. While during recession, their income level falls and they move into lower income tax bracket, and pays less taxes.